Video

John J Hardy
The euro soars on subtle hawkish tone from European Central Bank president Mario Draghi, but the question is if the rally has been too sharp? John Hardy, head of FX strategy at Saxo Bank, takes an in-depth look at Draghi's rhetoric and evaluates what effect it has on major forex crosses.
Article / 19 June 2017 at 5:11 GMT

Macro Monday: A flock of hawks ... Fed, BoE and BoC — #SaxoStrats

Global Macro Strategist [Asia based] / Saxo Bank
Singapore
  • Key this week are the Fed speakers, flash PMIs and the RBNZ decision
  • Coffee and sugar remain at 52-week shorts
  • EUR positions have turned net long and MXN is at 52-week highs

By Kay Van-Petersen

A replay of the global macro weekly call for week 25 is available here.

Summary of prior week

  • CPI divergence, beats in UK versus misses in US.
  • Federal Reserve, more hawkish than expected; Bank of Canada also hawkish speeches and Bank of England members more hawkish than expected.
  • AU data beating NZD data. AUDNZD position put on.
  • CMD: Oil trying to stabilise around lows of 2017.
  • EQ: US flat, Europe pulls back.
  • FX: CAD; AUD, EM FX seeing strength.
  • FI: US 10-years tighten on CPI miss in US.
  • Volatilities: lower on the week, VIX down from 12.4 to 10.4 end of week.
COT report

The week ahead 

  • Key focus : Flock of Fed speakers, Flash PMIs, RBNZ
  • Central banks: RBNZ 1.25%e/p (22) NO 0.50%e/p (22) TA 1.375% e/p (22) PH 3.0% e/p (22) MX 7.00%e 6.75%p (23)
  • Fed Speakers: Dudley (19) Evans (20) Fischer (20) Rosengren (20) Kaplan (20) Powell (22, 24) Bullard (23) Mester (23)
  • Other: Lowe (19) Zhou (20) Carney (20) SNB (20) Ingves (20/21) Kuroda (21)
  • Economy: US: CA, House Data, Flash PMIs CH: CB Leading Index EZ: CA, Flash PMIs JP: PPI, IP UK: Borrowings, House Data AU: RBA Mins (20) Vehicle Sales, House Data NZ: Milk Auction, Visitor Arrivals, Spending
Key events

  • Fed: Janet Yellen more hawkish than people expected, yet US bonds only pricing one hike for the year. Jan 19 Fed Fund Futures pricing only one hike by end of 2018. Seems off.
  • Consensus view: Yields to continue to compress. To date this has been right. But this view implies a higher probability which is not justified.
  • Comments on Fed policy error by the street are premature.
  • Other consensus views to keep in mind: Short USD; Long FANGs, Short Tesla, Long USD Equities, Short GPB/UK Assets, Bearish on global inflation and higher rates, Bearish Fed's ability to deliver, Long EM, Short Volatility.

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  New Zealand will be in focus this week as the RBNZ makes an announcement
on rates. Photo: Shutterstock

Technical picture: Edmund Liu 

  • Dollar index: Bouncing off trend, break of this support would open up bear case. For now weekly holds. MACD picking up upside momentum.
  • GBPUSD: Inverse H&S pattern. Bottoming formation valid providing it remains above 1.27. Topside target from the inverse H&S at 1.3445.
  • EURUSD: Rising wedge from May broke which couples with MACD cross over, hints at bearish outlook. Opens up 1.10 initial target.
  • EURGBP: Higher highs on the cross with lower lowers on volatility, pointing to a EURGBP correction to 0.85.
  • AUDNZD: bullish on the pair, downside momentum reverses with MACD having a bullish cross. Upside a target 1.075.
  • USDJPY: Supported on trend line support from April. Upside momentum and a MACD crossover pointing to upside move.
  • USDCAD: Support on trend line support from mid-2016, stochastics oversold, suggesting upside momentum. Fibonacci’s indicate sell off has been completed.
  • Gold: Long-term multiyear trend line has capped. Daily chart indicates double top at 1295 and a break of trend line support. Looks to target 1220.
  • Silver: losing upside momentum, with double top at 18.40 level, and MACD bearish cross indicating Silver to trade lower for a price target of 15.15

KVP portfolios

  • New AUDNZD long in the tactical book. Last 1.0466, we are long from 1.0530, Stop 1.0390, Targets are 1.0698 & 1.0780
  • We closed off our US 10-year bond futures short in the nick of time in the strategic book. Plus some slight target updates on our USDRUB shorts

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Please see our Q2 Outlook here.

  – Edited by Gayle Bryant

Kay Van Petersen is Global Macro Strategist at Saxo Bank. You can follow him on Twitter: @SaxoStrats or @KVP_Macro. Please join us live for next Monday's Macro Call at 0830 [Singapore/Hong Kong], 0930 [Tokyo], 1030 [Sydney]. 
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